Date: 02/12/18 Equity kind of stake for the revival of sick MSME

News Letter 

Date: 02/12/18

Equity kind of stake for the revival of sick MSME

Sri Ajay Shankar Prof at TERI has advocated for creating a fund by various methods to bring equity kind of investment in many large corporates for the revival with either change in investment or supporting existing by value creation.

We are proposing the same for last 2years for MSME and have already made 3 investment and in next 3 to 4 years, expect 15 to 25% return year on year basis.

As the fund required to turnaround for MSME in loan range of 1cr to 10cr will be around 5lacs for running units and cost of job retained will be @15000 against creating one job by capital investment 50000 to 300000lacs.

Handholding is very critical and the process will be a crisis, stabilization & growth management. 

In the Crisis phase, our person will monitor daily activity with a focus on operational efficiency and utilization of idle capacity and focus on troubled activity solution, mainly accounts management. Our back office will prepare a marketing plan and various hurdles which can be predicated and resolving it. This phase can be 2 to 6 months.

The second phase will be stabilization which can be 3 to 12 months, where systems like MIS will be introduced, inventory management, data mining HRM and controls will be established and watched with great care to its effect on operational efficiency and increase in idle capacity utilization and cost cutting or cost efficiency.

If bankers agree, with or without further finance, growth plan will be made and implemented.

This will require 2 round of equity infusion. One of crisis stage where valuation of the asset will be very low and after stabilization where valuation can be higher than the first round. In 3 years to 5years, exit can be listing on SME Exchange, promoters buyback or other investors entering or replacing as the case may be.

Funding can be done by social entrepreneurs who are looking to change the landscape for employment or by crowdfunding, or creating an SPV for an alternative investment fund and 10 to 15% return can be generated on this.

Govt can facilitate this and no budgetary support is required.

Request all stakeholder to comment/give a suggestion.

Regards,

N.P. Desai

Chief Consultant

Mob: 9885326553

www.growthidealab.com

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Newsletter RBI Board Meeting on 19/11/2018

Newsletter

RBI Board Meeting on 19/11/2018

RBI has given press release at 9'o clock in the night about board meeting on 19/11/2018.

One point which attracted my attention was stress asset of MSME below 25cr. I was waiting for 3 days to hear for further announcements. At this moment, I could not lay hands on.

So, I am writing here my view.

1. According to me, stressed asset below 25cr, means job retention in MSME and as on today, all public sector banks have delegated powers to the level of regional manager and or Deputy General Manager.

2. During the last 3 years, I hear that often under pressure from their higher up's, the only job of this regional manager or DGM is to recover. It is very convenient for them to transfer the file from the operations department to stressed asset department and once the file goes from operations to stress asset, no way it can come back & officers in stresses assets are not trained for revival. So when RBI announces new measures for resolving stress assets, they should see that it is implemented in right earnest.

3. In March 2.016, RBI has instructed for resolving MSME loans but my discussion with banks at the branch and regional level indicates their attitude only for recoveries and they prepare files in such a way that entrepreneur is killed and employment is lost.

Once again I request RBI, Bank boards and chairman to consider the ground level realities before formulating guidelines/directives.

I also, request Secretary DIPP who is a nodal officer for ease of doing Business to look into this as it will not only retain jobs but will help govt to get taxes.

Regards,

N.P. Desai

Newsletter (28/11/ 18) Ease of doing business

NEWSLETTER

Ease of Doing Business

Date:28/11/18

About a couple of days back, Honorable Prime Minister Narendra Modi called few industrialists and govt officials and praised for improvement and said that now it has to go to the district level. Percolating down to district level will definitely help to improve.

But I do not understand why we should worry about EODB? Is it to increase employment in the economy? Or to increase per capita income? Or any other motive. As the net saving rate is falling, dependence on foreign capital is the need of the hour.

Shri Narendra Modi has to restructure the old mindset of the middle level of govt staff and I can assure that by reducing old mindset of babushahi and efficient working using modern technology like Blockchain will definitely improve EODB by at least by 10%.

Regards,

N.P. Desai

Open Letter in response to the article published on Business Line (19.11.2018)- Unorthodox approach to resolving NPAs

Open Letter in response to the article published on Business Line (19.11.2018)- Unorthodox approach to resolving NPAs

An unorthodox approach to resolving NPAs

I have read with a lot of interest the article in the business line of 19.11.2018

You have covered a gamut of large borrowers and as per RBI & IBC, this may be the need of the hour and every senior person, in all stakeholders are working for 500cr and above assets. For the last 36 months, I am working for the revival of sick MSME and now for the last 12 months, I am investing in these sick MSME in the form of equity.

My study shows that on average of 5lacs investment, it will be possible to revive one MSME with 20 workers (in operation). As you have mentioned, it will be difficult challenge to create such fund for large corporations but for small MSME unit, we can depend on CSR funds, impact investors, philanthropic foundations, equity kind of crowdfunding.

I am suggesting following Tax incentives:

1. As of now 90 to 95% MSME are proprietary or partnership, they are not permitted to carry forward losses, if govt permit these losses to be carried forward, merger and acquisition will become easy.

2. As most of MSME depend to raise money from friends & relatives govt can formulate some tax incentives so that pressure on the banking sector will reduce say 30% investment allowance.

3. The government can permit special mutual fund for investment in MSME with some tax incentives so that Growth Capital to growing MSME can be provided.

With the change in asset class allocation by the younger generation, there may not be a problem of fundraising.

To give you an idea, NPA in MSME is in range of 96000cr against total funding or 11lac crore but at some ratio, 1cr jobs are at stake and at our estimate total funding required can be of 15000cr but by reviving these units, govt.  may collect the tax of 5000to 8000cr/month with 2months / 3months gap and it will put few lacs crore of underutilized asset into use.

 These are my views. 

Thanks.

N.P. Desai

Chief Consultant

Growth Idea Lab

MSME Senerio in India

News Letter

Date:17/11/18

MSME Senerio in India

In 1969, Indira Gandhi nationalised the banks. one of the agenda may be to tackle unemployment by directional lendings. From that time, until today, in one form or the other same is continuing. As of today, 1 job can be created by 50000 to 300000 capital investment.

Few pointers I would like to bring out:

1. All these years, a lot of entrepreneurs are created but there are failures in ventures. This has created a lot of social disorders like entrepreneur's kids are not ready to join the venture as succession.

At some stage in their life, children ask "What did you do for me" and they desert parents.

For the last 30 to 40 years, I am trying to inform academia and scholars to study the impact of failed entrepreneurs and its social effect.

2. We have created app 6cr MSME employing 11cr people i.e., 44cr lives. During the last 3 years, the rate of growth of MSME may be 15-20% year on year. But if we take NPA(as per MSME Pulse) app 90000cr, I feel most of this enterprise can be revived by spending 15000cr thus saving 1cr jobs.

3. The article by your team is indicating faith in small entrepreneurs like microfinance but why all NBFC/Fintech in this space, a fund for sick MSME. All NPA in MSME may not be making of entrepreneurs. It can be other stakeholders like Banks, Govt market.

Example, because of the plastic ban in many states, a lot of these units are going to close. One estimate says app 7.5lacs jobs are stake. Can any alternative be thought?

From 2011-2013/14, in Andhra, severe power cut was there. Only 3 to 4 days in a week, power was available which has forced many at least 40% of MSME to became weak/sick and lakhs of jobs are lost.

4. During the last 40/50 years, govt has thought of EDP and various training programmes but it has not reached to lakhs of entrepreneurs as it has not been made compulsory and it has not been marketed well.

5. I also feel, because of NPA many entrepreneurs have started milking banking system or played with all stakeholders.

If they make more profit, they would like to suppress and create black money and if they make a loss, they inflate and hope to recover.

Their CA'S are to be blamed.

6. During 3 to 5 years journey, all entrepreneurs shall understand their own balance sheet(original or fudged) and derive corrective steps. This will increase their operating profit and thus repaying capacity.

These are few points to be considered by all stakeholders in this area.

Regards,

N.P. Desai

12 Point Agenda for MSME

News Letter

12 Point Agenda for MSME

Date:11/11/2018

Sri Modi announced new MSME policy on 2nd NOV

One Point which attracted my attention is an effort to create deep bill discounting culture which is a need of the hour.

As the requirement any corporate above 500cr do not register on Tradex, bill discounting platform, what happens to MSME?

From Independence we have gone on the penalty based system, can we change to the incentive-based system so that the real impact to all MSME can come.

Let policymakers think and work out ways for it.

Regards,

N.P. Desai

2nd Nov Announcement by Honourable Prime Minister for MSME

News Letter

2nd Nov Announcement by Honourable Prime Minister for MSME

Date:11/11/2018

It was good to hear 12 points Diwali Bananza announced by Sri Narendra Modi.

The policy makers seating in A/C cabins and Chairman of Banks on whom the Prime Minister depend to give this Diwali Bananza. Let the Chairman or Executive director of Banks directly interact with their Own Small customers and Understand.

Sri Modi said that 6.3cr MSME is giving employment to 11cr people which means app 44cr lives and the top of the system, Sri Narendra Modi is seating, there are a lot of filters and he is not getting any ground level pictures.

Every Minister in both Central & States bureaucrats at both Centre and States, various Commissioner in Industry departments are only giving lip sympathy to these new entrepreneurs.

Let us see the problem from 10 to 20 years perspective. We are creating Social disorder by the children of these entrepreneurs. They do not want to join this and they blame "What did you do for me?" when they have grown up and they desert the parents.

The suicide of farmers get coverage in media but suicide by these entrepreneurs are not reported anywhere. So these MSME's are only left to their fates?

Korea and other developing countries had at one time 80% NPA in MSME and they trusted these entrepreneurs for their contribution and given chance for coming back in their lives.

With IBC, all big cases are getting the attention of Chairman and ED and General managers but MSME's are the pursued legal course of recovery.

Whether Country gets any economic output or social output?

Let Sri Modi think and correct this as a statesman or as Politician.

Regards,

N.P. Desai